Dollar is staying generally week today, except versus Kiwi and Yen. But FOMC announcement ahead could change its fortune. There is no chance for Fed to change federal funds rate at 2.25-2.50%. Also, Fed will, without a doubt, maintain its patient stance regarding any monetary policy adjustment.
As a reminder, monetary policy normalization is considered largely completed after December’s rate hike. Balance sheet run-off is also on track to completion later this week. Generally speaking, policymakers would need strong evidence of an emerging trend in either inflation or employment to make another move.
Yet, an important factor to watch is Fed chairman Jerome Powell’s response to strong growth but sluggish inflation. Dollar bears would like to hear Powell mentioning the downside risks in inflation and the readiness to cut interest rate should outlook worsens. On the other hand, Dollar bulls would like to hear Powell dismissing the talks of rate cut as being premature.
Either way, Dollar would pick up its near term direction from there.
Here are some suggested previews:
